“Is The 4% Withdrawal Rate In Retirement Even Relevant?”

Recent surveys of retirees conducted by The Employee Benefits Research Institute (EBRI) confirms what I’ve learned from many years of working with older clients: Spending changes throughout retirement. In my experience, spending changes often lead to client requests for more or less retirement income, which is why I don’t subscribe to the idea that the annual withdrawal rate should be set in stone at 4%. Income should be flexible to support the lifestyle and health-related changes that inevitably occur during the average 20- to 30-year retirement.

 These days, many people are healthy and quite active when they leave the workforce. And I find clients like to reward themselves shortly after they retire by spending money on the purchases and activities they’ve postponed: traveling, buying a cottage by the lake, taking that special vacation, or something similar. This “reward euphoria” as I like to call it, often comes with a large price tag, necessitating more than a 4% withdrawal. Is it justified for a few years? I say yes if a client’s savings are adequate.

In my experience, retirees begin to spend money differently between 5 and 10 years later. At this point, mobility and medical problems may keep them at home and prevent them from taking big trips. As a result, they may need less retirement income and spend a higher percentage of their budget on out-of-pocket healthcare costs and better yet, spoiling their grandchildren.

During the last phase of retirement, the expenses associated with a long-term care event can drive up the need for income exponentially. That’s why I’m such a strong believer in advance planning. I advise clients to earmark a percentage of savings exclusively for care or purchase long-term care insurance.

Hindsight is 20/20, so it’s no surprise that the retirees EBRI surveyed in 2020 wished they had saved more. Disciplined spending and sticking to a budget are always challenging but are especially difficult today, as people marry and start a family later in life, then themselves being pre-retirees with college-bound children. College costs have risen dramatically over the years, and more and more parents are going into debt to send their children to private colleges. It used to be that kids would attend the colleges their families could afford. Now, I see many parents sacrificing their retirement security to pay for a private education at a university across the country. The more prudent alternative is usually attending a public university and living at home; however, many parents seem reluctant to make that choice. While some believe a private education is superior and worth the added expense, a growing number seem to see college admission as a competition with other parents. They always aim to win, even if it means depleting their retirement savings accounts, borrowing tens of thousands of dollars, and eliminating their chances for a comfortable retirement.

  These same pre-retirees also face financial challenges as underemployed college graduates return home to live or need financial support to live independently. At the same time, elderly members of the family may need help meeting long-term care or other healthcare expenses. It may be in a couple’s best financial interest to say “no” to these requests, but they are very personal, emotional decisions that almost always end with “yes” and have dire financial consequences.


The same 2020 research study shows that having a nest egg makes retirees feel happy and fulfilled. I suspect the real enjoyment comes from what that nest egg provides: the freedom to focus on the activities and people they love.

The majority of retirees surveyed had satisfaction levels that were above average. The least satisfied respondents had the highest levels of debt. While retiring with good debt (a fixed mortgage on an appreciating property) can be advisable, retirees who were saddled with a mountain of bad debt (car loans, credit card balances, maxed-out lines of credit) showed signs of strain, including lower life expectancy.

A realistic retirement income plan offers the flexibility to support the spending changes that inevitably occur during a 30-year retirement. Flexibility means preparing now— before retirement – with assistance from an experienced financial advisor who can help you create a realistic budget, debt management program, make smart use of tax-advantaged savings plans, and help you get around saying “no” by finding a smart way to say ”yes.”

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